HW5 - An Nguyen.docx - HW5 Group member 1: Thu Duong Group...

HW5
Group member 1: Thu Duong
Group member 2: An Nguyen
Group member 3: Thanh Tran
Chapter 16: Problem 16-2
Day sales outstanding =
Receivables
Sales / 365
=
2,000,000
10,000,000 / 365
= 73 days
If all customers paid on time, the day sales outstanding will be 30 days.
Day sales outstanding =
Receivables
Sales / 365
30 =
Receivables
10,000,000 / 365
=> Receivables = 30 x (10,000,000/365) =
821,917.81
Capital would be released = 2,000,000 – 821,917.81 = $1,178,082.2
Problem 16-3
Net daily purchases = 8,000,000 / 365 = 21,917.81
-Payables level, if the firm takes discounts:
Payables = 21,917.81 x 5 = 109,589.05
-Payables level, if the firm takes no discounts:
Payables = 21,917.81 x 60 = 1,315,068.6
-Credit breakdown:
Total trade credit $1,315,068.6
Free trade credit - 109,589.05
Costly trade credit $1,205,479.55

r
NOM
=
Discount
100 − Discount
x
365
Dayscredit outstanding − Discount period
=
3
100 − 3
x
365
60 − 5
=
3
97
x
365
55
= 0.031 x 6.636 = 0.206 = 20.6%
EAR = (1 + Periodic rate) N – 1 = (1 + 0.03/0.97) 365/55 – 1 = 1.225 – 1 = 0.225 = 22.5%
-Bank loans: 10% interest paid monthly
EAR = (1 + 0.1/12) 12 – 1 = 1.1047 -1 = 0.1047 = 10.47%
Lamar should use bank debt because the EAR of bank loan is less than the EAR of additional